Interim final rule issued to implement HELP Act

March 22, 2016 -- Small creditors that operate in rural or underserved areas could avail themselves of certain special lending provisions under an interim final rule issued Tuesday (and which takes effect March 31) by the CFPB.

The interim final rule implements legislation enacted late last year (the Helping Expand Lending Practices in Rural Communities, or “HELP” Act), which allowed more small creditors operating in the rural/underserved areas to take advantage of the provisions.

In a release, CFPB noted that the rule provides “broader eligibility for lenders serving those areas to originate balloon-payment qualified and high-cost mortgages.” The agency also stated the interim final rule is being adopted to fit within the background of its prior regulations in the mortgage market.

“In January and May 2013, the CFPB issued several mortgage rules, most of which took effect in January 2014,” CFPB stated. “They included the Ability-to-Repay rule, which protects consumers by requiring lenders to make a reasonable and good-faith determination that prospective borrowers can repay their loans. Under the rule, a category of loans called Qualified Mortgages, which cannot include certain risky loan features for consumers, are presumed to comply with ability-to-repay requirements.”

CFPB noted that, several provisions in those existing mortgage rules affect certain small creditors, including those operating in rural or underserved areas. The agency noted that small creditors that predominantly operate in such areas can originate Qualified Mortgages with balloon payments even though balloon payments are otherwise not allowed with Qualified Mortgages. Similarly, under the Bureau’s Home Ownership and Equity Protection Act rule, such creditors can originate high-cost mortgages with balloon payments. And under the Bureau’s Escrow rule, these creditors are not required to establish escrow accounts for higher-priced mortgages.

The CFPB will accept comments on the interim final rule for 30 days after its publication in the Federal Register.